The Chinese State Administration of Foreign Exchange (SAFE) has bought a 1.6% stake in French oil firm Total SA. SAFE has been building the $2.8 million stake since the end of last year. This investment is notable not just for its size but for the increasing gallantry of soverign wealth funds (SWF).
Due to their secrecy and vast purchasing power, SWF’s have been dubbed by some as the new hedge funds. They were responsible for almost $60 billion worth of investments in Wall Street banks since the credit crisis started, providing capital when it was scarce. Some have been around for longer than others, the Abu Dhabi Investment Authority has been operating for over thirty years, while the Chinese Investment Corporation, another Chinese SWF, was only formed in September 2007.
SAFE is responsible for China’s $1.6 trillion of foreign reserves and was known for investing in low risk government bonds and a 1% stake of some Australian banks. The stake in Total is not the riskiest investment on the market and is welcomed by the French firm. Institutional investors are less worried about short term fluctuations, allowing investment for long term profits. There’s also a near zero chance of a hostile take-over or the corporate raiding so popular in private equity.
A Total spokeswoman confirmed the positive relatonships with SAFE by stating that “funds of this type choose profitable and long-term assets.”
Low risk Banks, Oil Companies and construction firms have been the bread and butter of SWF’s in the last few years. But as their power grows and little regulation is created to police their actions, SWF’s may become the finance industry’s next golden boys.
